ERC-20 Tokens, Explained

Ethereum is a decentralized network of computers with two basic functions.

They are: blockchain that can record transactions, and a virtual machine that can produce smart contracts.

Because of these two functions, Ethereum is able to support decentralized applications (DApps). These DApps are built on the existing Ethereum blockchain, piggybacking off of its underlying technology. In return, Ethereum charges developers for the computing power in their network, which can only be paid in Ether, the only inter-platform currency.

Depending on its purpose, DAPPs might create ERC-20 tokens to function as a currency, a share in the company, for points in a loyalty program, or even proof of ownership, say, of an amount of gold or the deed to a house.